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Wednesday, September 16, 2020-12: 22: 00
DBS Group Research has maintained its “buy” recommendation on transport operator ComfortDelGro with a price target of S $ 1.96 amid recent announcements in the industry, including extended support for taxi drivers and private rental drivers.
On the one hand, the Land Transportation Authority (LTA) announced on Tuesday the extension of the Special Assistance Fund (SRF) for an amount of S $ 112 million for the point-to-point (P2P) industry. Of this amount, S $ 106 million will go towards providing rental benefits for active taxi drivers and private rental drivers until March 2021.
This translates to a rental relief of around S $ 10 / day per vehicle, based on the original relief announced in early February this year, DBS analyst Andy Sim wrote in a research note Wednesday.
With the resumption of some activities in Phase Two, the demand for taxis and private rental cars has increased, although passenger numbers are still around 70 percent of pre-Covid-19 levels, LTA said. The transport authority also indicated that taxi operators have pledged to continue offering equivalent rental refunds worth S $ 29 million to their contractors. For example, ComfortDelGro is extending its 25 percent rental exemption for renters from September 16 to October 31.
“We estimate that on average the exemption could amount to approximately S $ 30 / day, of which S $ 10 is from the government SRF. This is a progressive step down from the 30% / 40% rental exemption / 50% extended in the last few months after the ‘circuit breakers’ period, “said Sim.
DBS noted that the extension of ComfortDelGro’s rental exemption “is not totally surprising,” given the gradual recovery in passenger numbers. The research team sees the extension of the SRF as a “welcome relief” to support the industry and ease the burden on transportation operators.
“In fact, the gradual downward step in ComfortDelGro’s rental exemption shows an improvement in passenger numbers and is in accordance with our thesis and observation,” said DBS.
Furthermore, LTA has also announced that new applicants for the Vocational Private Rental Car Driver License must be Singapore citizens who are at least 30 years old and have a minimum of one year driving experience. This aligns with the requirements for taxi drivers.
According to DBS, the alignment of the eligibility criteria “was a long time coming,” and the research team awaited development last year. This will help limit potential new drivers that could cause further distortion of supply and demand, especially in the current period of lower demand, DBS said.
He added that the occurrence of the Covid-19 pandemic and its impact could catalyze a consolidation of the P2P industry. With Singapore’s private rental car fleet increasing to more than 70,000 vehicles, along with a current fleet of 16,000 taxis, this would cause weaker players to leave the industry, DBS said.
Overall, the research team believes that ComfortDelGro valuations are attractive at 1.2 times the price of book value, which is -2 standard deviations from the historical average of the accountant. DBS also believes that the market has not appreciated the Phase Three recovery and sees greater likelihood of share price appreciation over the next six to 12 months.
Shares of ComfortDelGro were trading at S $ 1.53 as of noon on Wednesday, up S $ 0.04 or 2.7 percent.
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